JSW Steel, JSPL, Shyam Metalics: What ICICI Securities says on steel stocks

ICICI Securities has maintained its positive on ferrous metals sector, as domestic spread remains near historical lows and robust domestic consumption growth is sufficient to offset lower export volumes, the domestic brokerage said.

The domestic brokerage expects steel longs prices to cool off slightly due to seasonally weak monsoon period. In case of flats, domestic prices are at a premium to landed cost of imports and hence the market remains cautious of an uptick in imports, ICICI Securities said,

Channel checks indicate that restocking in domestic market is likely to start soon as Union Budget announcements may be conducive for steel consumption growth, it said.

"On supply front, we believe the risks are overblown as 21mtpa of incremental crude steel capacity in India is likely to come progressively through FY25. Further, incremental sales volume is likely to be only 4-5 mt resulting in market balance being maintained for flats. In case of longs, we believe ramp-up of secondary steel sector capacity is crucial in preventing the supply deficit," the brokerage said.

In the carbon steel space, ICICI Securities' top picks include Jindal Steel & Power Ltd or JSPL (Buy, target price: Rs 1,240) and JSW Steel (Buy, target price: Rs 1,140). Among smaller players, it is positive on Shyam Metalics (Buy; target price: Rs 825).

The domestic brokerage said HRC steel price in domestic market remained rangebound between Rs 54,500-Rs 55,000 per te for third week in a row. Domestic spot spread (HRC) is at Rs 26,320 per tonne, broadly stable week-on-week. 

"Over the last one month, global iron ore prices have cooled off by 10 per cent but global coking coal prices have risen 9 per cent. This has resulted in HRC prices in Japan and South Korea (major exporters to India) remaining unchanged. That said, Chinese export prices have cooled off by 4 per cent over the last one month to $525/te, at the bottom end of past one-year
range of $520-590/te," ICICI Securities noted.

At current level, domestic HRC prices are at a premium of 6-9 per cent compared with the landed cost of imports, resulting in apprehension of imports picking up. Thus far, ICICI Securities' channel checks do not indicate any import bookings. 

"Longs prices continue to be strong, having risen by almost Rs 7,000/te since end-Q4FY24 in primary market. On average, primary rebar prices are up Rs 5,000/te (QoQ) compared to Q4FY24. In secondary value chain as well, prices from pellets to rebars have shown an uptick of almost 8-10 per cent QoQ," it said.